In today’s economy, where the unemployment rate in California has gone up from 7.4% to 9.3% in just 6 months (July to December 2008) and the number of mass layoff events has increased by over 80% in that same time, knowing one’s rights to extended healthcare coverage is increasingly important. The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 (PDF) is the federal law that gives certain employees the right to continue their group health insurance when it would otherwise end. This continued care is particularly important for people not yet eligible for Medicare, and those with Medicare who require the extra comprehensive coverage they may receive through their employer plan. This article reviews some of the basics of how COBRA works, who qualifies for it, new help available with COBRA premiums from the signed economic stimulus bill and additional resources to learn more.
Which employers must offer COBRA and what are the benefits?
Federal COBRA requires employers that have at least 20 employees to offer continued group health coverage to qualified employees and family members. Under California state law, CalCOBRA requires employers with 2 to 19 employees to offer continued coverage. Employers include both private employers and public employers (local and state government), but do not include churches or the federal government.
Who qualifies for COBRA?
A covered employee and/or family member qualifies for COBRA when they experience certain life changes, called ‘qualifying events,’ that trigger the right to continued coverage:
- Voluntary or involuntary termination of employment for reasons other than gross misconduct
- Reduction in hours of employment
- Entitlement to Medicare for covered employee
- Divorce of legal separation of covered employee
- Death of the covered employee
- Loss of "dependent child" status under the plan rules
An employer’s plan administrator must notify the employee and the covered family member of their right to continued coverage within 44 days of the event, except in the case of legal separation or divorce. In those cases, the individual must first notify the plan administrator of the separation or divorce, and then the administrator has 14 days to notify them of their COBRA rights. A person then has 60 days after receiving the COBRA notice to let the administrator know if they want COBRA coverage or not.
Medicare and COBRA
What are my options if I am eligible for both Medicare and COBRA?
It depends on when you became eligible. If you chose to continue coverage under COBRA or CalCOBRA before becoming eligible for Medicare, your entitlement to continuation coverage usually ends once you’re Medicare eligible. If you and your spouse chose to continue coverage under COBRA, and you then become eligible for Medicare, your spouse may be entitled to additional months of COBRA coverage even though your coverage will end because of your Medicare eligibility.
If you have Medicare before qualifying for COBRA, you can have both Medicare and the continued coverage from the employer group insurance. This rule does not apply to CalCOBRA. In other words, if you already have Medicare and your employer has between 2 to 19 employees, your employer is not required to offer continued group health coverage.
What are other options besides COBRA?
If you have Medicare and become eligible for COBRA benefits, you may choose to continue coverage under COBRA, or you may consider other ways to supplement Medicare, such as a Medigap plan or a Medicare Advantage plan. Please see our sections: Supplementing Medicare: An Overview, Medigap Plans, Your Rights to Purchase a Medigap Plan, and Medicare Advantage: An Overview. This information is also available in downloadable fact sheets (PDF).
What are some factors to consider in deciding whether to continue coverage under COBRA?
- Make sure to compare estimated costs for continued coverage under COBRA with estimated costs for a Medigap or Medicare Advantage plan. Is the premium for continued COBRA coverage too high for second insurance? (See note below premium relief through the recently passed economic stimulus bill)
- Compare benefits offered by COBRA’s continuation coverage to benefits under Medigap or Medicare Advantage plans. Do you need the benefits from continued coverage? Are these benefits substantially different from those you would get with a Medigap or MA plan?
Also note that if you have Medicare and choose to continue COBRA coverage, Medicare is the primary insurer and COBRA is secondary, paying after Medicare has paid.
People with end stage renal disease (ESRD) who have Medicare and employer health coverage have an exception: for the first 30 months, called a “30-month coordination period,” continued COBRA coverage is the primary insurer and Medicare is secondary. After the 30-month coordination period, Medicare becomes the primary payer. See our fact sheet, Medicare and People with ESRD.
What does COBRA cost?
If you are eligible for COBRA or CalCOBRA and choose to continue coverage with the group health insurance, you are responsible for paying the full amount of the premium, plus an administrative fee. With COBRA, this amount is usually 102% of the premium that the employer pays (if their premiums are based on the employee’s age), and with CalCOBRA, it is 110%. If the premium the employer pays is not based on your age, you will pay a maximum of 213% of the ‘group rate,’ which is the total premium the employer pays divided by the number of employees. Your premium will change each time the employer’s premium changes regardless of the method used to calculate your premium.
Note: The $787 billion economic stimulus bill that President Barack signed into law On February 17, 2009 includes some relief on COBRA premiums. The federal government will subsidize 65% of a person’s COBRA premium for up to 9 months. To be eligible, you must have been forced out of your job between Sept. 1, 2008, and Dec. 31, 2009. Also, your income in the year you receive the subsidy cannot be more than $125,000 for individuals or $250,000 for married couples filing their taxes jointly.
If you lost your job after Sept. 1, 2008, and declined COBRA coverage, you’ll now get another chance. Call your former company in the next two months to find out how this will work.
Enrolling in Medicare Part B
If you had delayed enrolling into Medicare Part B because you were covered by your employer’s health plan, you should enroll in Medicare Part B when your employment terminates. Even if you choose to continue employer group health coverage under COBRA, it is advisable to enroll in Part B because coverage under COBRA is not due to current, active employment. You have 8 months from when your employment ends, call a Special Enrollment Period (SEP), to enroll in Medicare Part B. If you do not enroll during this 8-month SEP, you may have to pay a penalty when you do decide to enroll in Part B later, and the effective date of your benefits will be delayed. See our section Coverage while you or your spouse works.
Enrolling in Medicare Part D
Similar to Part B, if you had delayed enrolling into Medicare Part D because you had creditable drug coverage through your employer plan, you should also enroll in Part D when you employment terminates. r Yet, you only have 63 days to buy a Part D plan after your group benefits end versus the 8-month period you have to enroll in Part B.
If you miss the 63–day period, you can generally enroll in a Part D plan only during the Annual Election Period, which is from November 15th through December 31st each year, and your benefits will begin the following January 1. You may also be charged a premium penalty. See our section on delaying enrollment in Part D.
Resources on COBRA
- Insurance through COBRA and CalCOBRA – our website section providing more details on how COBRA and CalCOBRA work, triggering events and length of coverage
- U.S. Department of Labor publications on COBRA